Factual and Procedural Background
The Plaintiff Company, referred to as Company A, was engaged in a development project at a location known as Connaughton Road in The City. The principal of Company A, referred to as Principal A, owned the lands involved and proposed a scheme for the lands’ development involving both residential and retail construction. The construction was to be carried out by Company A, but ownership of the land was to remain with Principal A. Upon sale, the purchase price was to be divided between Principal A (for the land) and Company A (for the construction). The Defendant, Company B, was engaged in relation to the development, though the precise scope of their involvement was disputed.
Company A initiated proceedings alleging that Company B failed in several respects regarding its design and construction obligations. Company B denied these claims, disputing the extent of its contractual obligations, the nature of the contract price, and allegations of culpable delay in completing the development.
Company B applied under section 390 of the Companies Act 1963 for security for costs and related orders. This judgment addresses that application.
Legal Issues Presented
- Whether Company B has established a prima facie defence to Company A’s claim.
- Whether Company A is unable to pay Company B’s costs if Company B is successful.
- Whether there exist special circumstances that justify the court exercising its discretion not to order security for costs, specifically whether Company A’s inability to pay costs is attributable to wrongdoing by Company B.
- How to approach the assessment of special circumstances where Company A is a special purpose company with nominal capital and limited assets.
Arguments of the Parties
Company A's Arguments
- Company A asserted that its inability to pay Company B’s costs was due to the alleged wrongdoing by Company B in the development project.
- Company A relied on a bank’s profit projection document suggesting a significant profit from the development, arguing that but for Company B’s wrongdoing, it would have been able to pay costs.
- Company A invited the court to assume that certain sales uplifts would benefit Company A, although no direct evidence supported this assumption.
- Company A suggested that its current financial difficulties stem entirely from Company B’s alleged wrongdoing.
Company B's Arguments
- Company B contended that Company A failed to establish a prima facie case that its inability to pay costs was due to Company B’s wrongdoing.
- Company B highlighted the nominal capital structure of Company A and argued that such a company must establish that, absent wrongdoing, it would have made sufficient profits to cover costs.
- Company B challenged the reliability and sufficiency of the bank’s profit projection, noting the lack of clarity about profit division between Principal A and Company A and the financial impact of social and affordable housing obligations.
- Company B emphasized the absence of evidence on Company A’s current and prior financial positions and argued that Company A did not exclude other causes for its financial difficulties.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Usk and District Residents Association Limited v. The Environmental Protection Agency (Supreme Court, Clarke J., 2006) |
Approved the test for security for costs requiring prima facie defence and inability to pay costs. |
Provided the foundational legal test applied to the security for costs application. |
| Interfinance Group Limited v. K.P.M.G. Pete Marwick (High Court, Morris P., 1998) |
Set out the two-part test and the concept of special circumstances in security for costs applications. |
Test adapted and applied to the facts regarding security for costs. |
| Jack O'Toole Ltd v. McEoin Kelly Associates [1986] I.R. 277 |
Clarified the onus on the plaintiff to establish a prima facie case that inability to pay costs is due to defendant’s wrongdoing. |
Guided the court’s assessment of whether Company A met its evidentiary burden. |
| Irish Conservation and Cleaning Ltd v. International Cleaners Ltd (Supreme Court, Keane C.J., 2001) |
Emphasized that security for costs applications require prima facie assessment without deciding the merits. |
Supported the court’s approach of a preliminary prima facie analysis. |
| Framus Ltd & Ors v. CRH Plc & Ors [2004] 2 I.R. 21 |
Confirmed that a plaintiff must show prima facie that impecuniosity is due to defendant’s wrongdoing and that quantum is relevant. |
Used to affirm the court’s consideration of quantum in assessing special circumstances. |
| Cork County Council v. Shackleton [2007 IEHC 241] |
Described typical arrangements for social and affordable housing obligations affecting developer’s financial outcomes. |
Applied to assess the financial impact of social housing obligations on Company A’s projected profits. |
| Glenkerrin Homes v. Dun Laoghaire Rathdown County Council [2007 IEHC 241] |
Similar to Cork County Council v. Shackleton, concerning planning gain and social housing obligations. |
Supported analysis of financial consequences of statutory obligations for Company A. |
| Lough Neagh Exploration Ltd v. Morrice & Ors (High Court, Laffoy J., 1992) |
Held that speculative or remote assertions do not constitute special circumstances to refuse security for costs. |
Supported the court’s conclusion that Company A’s failure to establish a prima facie case on profits rendered its special circumstances untenable. |
Court's Reasoning and Analysis
The court began by acknowledging that Company B had established both elements of the test for security for costs: a prima facie defence and Company A’s inability to pay costs if Company B succeeded. The burden then shifted to Company A to demonstrate special circumstances to avoid the order, specifically that its inability to pay costs was due to wrongdoing by Company B.
The court examined the legal principles governing such special circumstances, emphasizing that Company A must establish, on a prima facie basis, actionable wrongdoing, causation, recoverable loss, and that the loss is sufficient to explain its inability to pay costs.
Because Company A was a special purpose company with nominal capital, the court required Company A to show it would have made sufficient profits but for Company B’s wrongdoing to be able to pay costs. The court scrutinized the evidence presented, notably the bank’s profit projection document, and found it unreliable and insufficiently detailed, especially regarding the division of profits between Principal A and Company A, and the financial impact of social and affordable housing obligations.
The court further noted the absence of evidence on Company A’s current and prior financial positions, and the lack of any evidence excluding other causes for its financial difficulties. The court found that Company A failed to establish a prima facie case that its inability to pay costs was due to Company B’s wrongdoing.
Consequently, the court concluded that the special circumstances exception did not apply and security for costs should be ordered. The court also indicated its intention to fix the amount of security itself, based on Company B’s legal costs estimate, while allowing Company A a brief opportunity to contest that figure.
Holding and Implications
The court’s final decision is to order security for costs against Company A. Company A failed to discharge its burden of establishing special circumstances to avoid such an order, specifically failing to show on a prima facie basis that its inability to pay Company B’s costs was attributable to Company B’s alleged wrongdoing.
The direct effect of this decision is that Company A must provide security for costs before continuing its claim. No broader precedent beyond the application of established principles regarding security for costs and special circumstances was set by this judgment.